Assessment 3B
Aim for between 500-750 words - so be concise and precise!
Clicking on the heading above will take you to the relevant DF (labelled Assessment 3B) for this task. You need to create YOUR OWN new thread that identifies your chosen entity name (as you did for Task 2A, add the name in the SUBJECT line). Make sure you are using the SAME ENTITY.
Chapter 5 of your text explores audit evidence. Using the SAME entity you selected for Assessment Task 2A you need to explain some of the challenges you see in gathering various types of evidence as the financial report auditor for your chosen entity.
Choose and identify any three (3) types of audit evidence identified in Chapter 5 of your text. For each of the three types you need to explain the challenges you would face as the financial statement auditor in gathering and being persuaded given the nature of your chosen entity's business.
Here are a couple of examples to get you thinking ...
If your chosen entity is a mining company, and you wanted to (briefly) discuss the challenges of gathering physical evidence ... would you rely on evidence from the client, your own observations, an expert of some kind? Why? If you said the client, what is an example of the physical evidence the client may be able to provide to persuade you? Ask that same question about your own observations or an expert. Perhaps some combination of these providers?
If you chose the challenges of oral evidence, what specific matters would you wish to seek this type of evidence about for your chosen entity? From whom would you seek this evidence, and most importantly, how might you seek to corroborate any responses you obtain?
Remember the word limit and the above are only (some) examples .
ENTITY: https://www.asx.com.au/asxpdf/20170929/pdf/43mrkffv3rsym7.pdf
Completed assignment with lecturer’s comments
Steve 2/4: A very important point to make with the first bit of feedback for this Task is to encourage everyone, for this Task, to ensure that you carefully pay attention to applying the technical auditing language you have been learning across Modules 1 & 2 ... that implies you need to ensure you do NOT attempt this option unless you feel you have covered the relevant material for the Module .
Most of the feedback below highlights how you (being anyone reading this feedback) might pay attention to that technical language; THE SINGLE MOST IMPORTANT -other- point I want to ask people to ensure you pay attention to is the CONTEXT of your chosen entity. By this I mean the industry (or industries) within which your chosen entity operates - think about what you should have learned in Module 2 (and Module 1) about gaining an understanding of your client and their industry ... the LAST THING you want to be dong for this Task is simply identifying types of evidence and providing a general definition or description without applying this to the context of your chosen entity ... as per your instructions.
Sarah ... little of the above applies to your post ... just leveraging my opportunity to pass on some more information. Let me say, this is a very good effort for so early in the unit ... do not be put off by the detail in the feedback ... it is there to assist everyone and highlight examples of what I refer to above.
A reminder, please ... for maximum benefit all round, please add your amended post (should you choose to do so) at the bottom by using the Edit feature; this ensure the original version and retains the context for the feedback to make sense. Thank you.
Wesfarmers (WES)
Wesfarmers is a parent company of a diverse range of industries from retail and supermarkets to manufacturing wholesale and hardware. In the Australian Auditing standards (ASA) section 500 (all you need here is ASA500 ... if you are referring to specific paragraph (not section) then it might be (for example 500.10) discusses what constitutes audit evidence to ensure a rational conclusion in a financial report. This is a good example of where you might be a little more precise with the technical language ... what does the standard you identify say about objective of obtaining audit evidence? You should recognise some of the terminology from Module 1 being -applied-.
External confirmation
External confirmation is the use of external evidence requested by an auditor to a third party (A18 ASA 500)(think about how you might apply my advice above about referencing the standards here ... and elsewhere in the post if needed). As discussed in 5.2.2 (just say -text- here to be sure; and apply as necessary elsewhere in your post) external evidence can be a risk of the third party not responding when requested to provide further information or possible timing delay in response. However evidence from independent sources can be more reliable than internal information (ASA 505). After reviewing the financial report of Wesfarmers (2017), there is a potential hurdle for the auditor to be across all the different industries that Wesfarmes(spelling?) has under its business umbrella. An auditor can send out an external confirmation letter direct to the third party to either reply to the information request (positive confirmation) or if the third party agrees to not respond (negative confirmation). In instances where the auditor is not familiar with the industry and may have difficulty auditing an auditor can assess if they require the assistance of an expert (ASA 620). Suggest here thinking about if you believe an -expert- would be needed for debtors (a/c receivable) confirmations ... be careful when you are discussing your choice of types of evidence not to try and -fit- as many types of evidence as possible into your answer ... focus on the question; of course, for some types of evidence this point about using an expert MAY be crucial ... and that is what I want people to think about in terms of applying the context or understanding of their chosen entity (client) ... this also draws on your general business knowledge! As discussed in 5.4, an expert can be someone from the auditors firm who is not assigned to the audit (ASA 600) or a professional who is considered by reputation, competency and qualifications. There is a process of requirements covered in ASA 620 discussing from the requirement of an expert to evaluating their competency and adequacy of their work. There is a risk in using an expert as the responsibility falls to the auditor when the conclusion is drawn.
Physical evidence
Another obstacle to completing an audit on Wesfarmers could be obtaining physical evidence to confirm the tangible assets of the business (A15 ASA 500). Wesfarmers also has international companies which due to time constraints may not be possible to inspect. As discussed in 5.2.7 physical evidence is an inspection of the physical properties and resources that the business holds, such as inventory. In Wesfarmers case it is impractical for an auditor to inspect the inventory of each industry to perform test counts. In this occurrence the auditor has options of asking third parties to provide information in relation to the existence and condition of the assets (ASA 501). If one of the companies has already been audited and confirmed physical evidence the auditor may use the work of the other auditor (ASA 600). There are some issues to consider when using another auditors work as it falls on the responsibility of the group engagement partner (auditor signing the report at the end of the audit). The auditor must be component and comply with auditing standards (APES 110). Do you really mean -component-? More importantly ... this is a very important point and readers should be aware that the discussion above about using experts places the same responsibility on the engagement partner ... notice how the language here can be used there also (for consistency). Do you think the use of an expert might be more relevant to some types of physical evidence (try to -apply- this by considering inventory for different types on industry the Group operates in (for example, it is less likely for the segment of retail they operate within). Building on my emphasis of CONTEXT, all readers might pay special attention to this point ... try not to refer to -inventory- too generally (or generically) if your chosen entity operates across several sectors (and certainly NOT if it offers services ).
Documentary evidence
Documentary evidence can be generated from both internal and external sources. As internal documents are prepared within the business, external documentation is more trusted (ASA 230). As discussed in 5.2.3 documentary evidence can be used to support tests and show a paper trail of transactions showing the completeness assertion. The documentation (-documentation-?) evidence is a key support in the audit assertions. This is testing the accuracy, completeness of records, classification and existence (to name a sample) can all be verified with supporting documentation. The foregoing expression is OK for now. During an audit the auditor will have oral conversations with management and employees to gain an understanding of the internal controls. Try to express your previous point as an example of internal or external sources (to tie in with your initial point above) ... then think about what -client documentation- (documentary evidence) they would compare that oral evidence against to corroborate evidence from different sources ... trying here to highlight that potential to tighten up the application of the technical language you are learning . The auditor must document the written responses (ASA 580). This, I suggest is another example of trying to -fit- another ASA -in- ... I suggest leaving it out; you are here talking about a specific type of audit documentation (ASA230; not client documentary evidence ... don't worry, this will be clearer by the end of Module 3!) If the auditor has doubts about the internal controls these must be communicated to the appropriate management (ASA 265). Good point ... but look a little more carefully at the stage of the process you have learned so far and try not to get too far ahead of yourself ... you have not yet tested controls to -know- if they are operating effectively (Module 3) but you may be aware of some poor design of ICs already ... so review text 2.4.2 and see if you can link a case mentioned to ASA260 (Hint: read the historical note right at the beginning) Wesfarmers circumstance it appears the auditor may have difficulty with the amount of documentation to be gathered and verified. However this would have been addressed in the risk assessment phase of the audit (ASA 300). A very important final point ... no good at the end to claim it was too difficult to get the evidence you need ... in Module 4 you will learn more about the impact that SHOULD have on the type of audit opinion you provide.
References
Australian Taxation office, Audit Documentation, Last modified 18 May 2016, https://www.ato.gov.au/Super/Self-managed-super-funds/SMSF-auditors/Auditing-an-SMSF/Audit-documentation/ Accessed 30/3/2018
Kemp, S, (FCA), Charted Accountants Australia and New Zealand, Auditing, Assurance and Ethics Handbook 2017, Standards as at 1/12/2016, John Wiley & Sons Australia Limited, Milton, QLD.
Moroney, R, Campbell, F & Hamilton, J 2017, Auditing: A Practical Approach, 3rd edn, John Wiley & Sons Australia Limited, Milton, QLD.
Rouse, R W, CPA Journal Online, The five assertions - a revisit, Published March1993http://archives.cpajournal.com/old/14038934.htm Accessed 29/3/2018